Formation of a contract of insurance
The first step is the Proposal:
This is the means, by which the insured makes known to the insurer, the nature of the risk the insurer is being asked to undertake. The terms of the proposal are embodied in a formal document called a policy.
There is no statutory requirement that contracts of insurance, other than marine insurance, must be in writing.
The second step is cover note:
This is a provisional contract of insurance, quiet distinct from the contract to be embodied in the policy. It provides an interim protection and usually states that it is to be for a limited period only until formal policy is delivered
In the meantime, however, the insurers are free to decide whether or not to accept the insured’s proposal. Similarly, the insured may withdraw his proposal without in anyway affecting the contract contained in the cover note.
The third step is commencement of cover The moment the insurance contract is formed mark the point at which cover commences. However, in practice the this commence the moment the first premium is paid.
PARTIES TO INSURANCE CONTRACT
1. Insurer. The party agreed to pay for the loss of the insured
2. Insured: the party who insured his risk of loss with insurer
RIGHTS OF THE INSURER
i. Right to collect premium from the insured
ii. Right to specify the conditions and benefit under the policy
iii. Responsibility to for the loss occurred
RIGHTS AND RESPONSIBILITY OF THE INSURED
i. To pay premium
ii. Right to collect the money from the insurance company if the
iii. Obligation to comply with the terms of the contract of insurance
TYPES OF INSURANCE
1. Life insurance (assurance). Insurance which deal with the insurance
of human life. Provides social security.
2. Non-life insurance
Personal accident insurance
FUNCTIONS OF INSURANCE
1. It helps capital formation
2. It help to share risk
3. It helps prevention of losses
4. It provides protection against economic loss
5. It provides certainty
CHARACTERISTIC OF INSURANCE
1. It is a cooperative device
2. It helps risk sharing and risk transfer
3. It require number of insured to be large to operate properly
4. It is not gabling
5. Claim is paid upon the occurrence of the insured event/risk
6. There must be an uncertain future event as no one knows when, or if, the event insured against will occur. Nevertheless, the party paying for insurance is essentially paying for peace of mind, with
the security of being able to transfer any loss that does in fact occur onto the party bearing the risk.
7. The insured must have an insurable interest in the subject matter of the insurance, whether this is the life or the property in question. Without insurable interest, the contract would be
regarded as a gaming or wagering contract and would, therefore, be invalid.
8. The insurance contract must be lawful. In order for any contract to be enforceable, it must first be legally binding on the parties. In the case of insurance, the insurer must be under a legal obligation
to pay the other party when the uncertain event occurs.
9. A contract of insurance must pay money or money‟s worth to the insured as compensation for his loss when the insured event occurs. After all, that is the point of taking up insurance in the
THE DIFFERENT BETWEEN INSURANCE AND WAGERING
Insurance contract Wagering contract
1 Insurable interest is the subject matter of the contract of insurance The interest in the asset is
limited. Parties are interested in winning and not otherwise
2 The insurance contract is based on the principle of indemnity No need of the application of the principle of indemnity because no risk covered.
3 The contract of insurance is legally enforceable Not legally enforceable because not recognized by the law
4 Risk and premium are fixed in the basis of scientific methods No such calculation are made
5 The insurance contract is based on the principle of good faith Not at all